Hospitals face increased scrutiny for charging facility fees

After Vermont hospitals started buying up local doctors’ practices, state Sen. Kevin Mullin of Rutland began hearing complaints that some patients were paying much more for routine care.

One family accustomed to paying about $120 in out-of-pocket costs for doctor visits and other medical services was outraged when their costs for similar visits soared to $1,000, Mullin said.

The reason for the increase: The physician practice had been bought by a local hospital, and “all of a sudden everything was charged differently,” said Mullin, a Republican.

The higher bills reflected “facility fees.” For years, hospitals that own physician practices and outpatient clinics have been allowed by Medicare to tack on these fees, separate from bills for doctors’ services, for the use of the facilities. As hospitals buy up medical practices and set up outpatient treatment centers, more of these fees are showing up on patients’ bills.

Hospitals argue they need the fees to keep operating. Critics say the fees needlessly add billions of dollars to the nation’s health care bill. Insurers in some cases have refused to pay them, which can add to the patient’s costs. But getting rid of the charges — or even requiring offices to post them — has proved daunting.

Mullin introduced legislation this year to stop Vermont hospitals that buy out local doctors from suddenly imposing facility fees, but the bill failed.

Nationally, Medicare pays an estimated $1 billion or more a year in facility fees, according to a commission that advises Congress. The fees are facing new scrutiny as Capitol Hill looks hard at Medicare costs. Hospitals are fighting back with support from the Service Employees International Union, which represents more than 1 million health care workers.

A decision by Medicare to quit allowing the fees would almost certainly lead private insurers to do the same.

Tom Nickels, the American Hospital Association’s vice president for federal relations in Washington, defends the fees, but he agrees the issue “is clearly in play.”

Patients can face facility fees when they seek care from hospitals or from physicians who sold their practices to a hospital and stayed on as employees, outpatient medical centers that are in a hospital-owned network, urgent care centers established by hospitals and outpatient surgery centers.

The fees date to April 2000, when Medicare clarified its policy. The Centers for Medicare and Medicaid Services acknowledged that some critics said that it should forbid hospitals from buying up medical practices solely to convert them to hospital “facilities” designed to rake in higher fees for similar services. But the agency said that it lacked authority to ban the practice.

Last year, the House passed legislation that included a provision to cut about $6.8 billion in Medicare costs over a decade by targeting facility fees in hospital-owned doctors’ offices. But the cuts didn’t pass the Senate.

The health care industry argues that prices must be based in part on where a service is rendered. That means hospitals, which bear substantial costs for equipment and personnel, expect to collect more money for the same service than at an independent doctor’s office. Hospitals further argue that practices or clinics they purchase become part of the hospital system and must help bear the burden of those costs.

Connie Peterson, 67, a retired graphics designer in Iowa City, was aghast when an outpatient surgery center sent her a bill for nearly $26,000 in facility fees.

“I was livid,” said Peterson, who spent months trying to get an explanation. “All I wanted was an itemized bill to let me know exactly what I’m paying for.”

Peterson had three procedures to remove nasal polyps during her 45-minute stay at the Iowa City Ambulatory Surgical Center in April. The center billed more than $8,000 in facility fees for each one, bringing the total to $25,872. She had to pay $1,086 of that, and her insurer negotiated a payment for the rest. The center said its rates were in accordance with national standards. Responding to criticism, hospitals are supporting a bill in Congress that would require more disclosure so that patients could compare prices. Some states already require that.

Meanwhile, the broader fight over facility fees continues. In January, the Medicare Payment Advisory Commission, or MedPAC, the body that advises Congress, recommended paying for doctor visits at the same rate, no matter where they occurred. In March, the commission recommended phasing in the cuts over three years.

MedPAC said that eliminating facility fees for doctor services would reduce Medicare spending by between $1 billion and $5 billion over five years.

The commission noted that in 2011, Medicare paid doctors $68.97 for a 15-minute office visit, of which the patient was responsible for a co-payment of $13.79. For that same service in a hospital-owned medical practice, Medicare paid a total of $124.40; the patient co-payment was $24.88.

“I don’t see . . . why a physician’s time is worth more as a hospital employee,” said Jeff Goldsmith, a Virginia health care consultant.

Goldsmith said Medicare is paying a “subsidy” that is “encouraging hospitals to buy up practices and dramatically increase the cost of their services.”

Last month, MedPAC suggested that Medicare also pay a single rate for a variety of medical procedures, regardless of the site.

The commission staff pointed out that Medicare pays 90 percent more for a laser eye procedure done in a hospital outpatient department than in a doctor’s office because of added facility fees. The commission is set to vote on a final recommendation in January.

MedPAC says that operating a “site-neutral” payment policy would save Medicare $900 million a year and would save seniors $250 million in out-of-pocket costs.

Insurers are growing combative, too. Dolores Mitchell, who heads the state of Massachusetts Group Insurance Commission, said she is encouraging health plans and patients to resist paying higher prices for the same services.

“If the nature of the visit is identical, it shouldn’t cost more money,” Mitchell said.

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The Center for Public Integrity is a nonprofit, independent investigative news outlet. For more of its articles on this topic, visit publicintegrity.org/health/medicare/cracking-codes